John Hood, president and portfolio manager, J.C. Hood Investment Counsel

FOCUS: Options and ETFs 

MARKET OUTLOOK:

At this time of year, investors are likely to ask what my predictions for the coming year are but what they should be asking is what my or my advisors’ strategy is going forward. I have often said on BNN that I do not really know what the market is going to do, only what I am going to do if the market hits pre-targeted levels. In other words, decide what you are going to do in advance.

Many investors will look at their returns in 2022 and adopt a “deer in the headlights” approach, that is, do nothing and pray for recovery rather than actively review asset classes. Others will say the markets are pretty volatile, let’s step aside and go back in when markets improve. This is a classic blunder, sell when stocks are low and buy when prices are higher; sell low/buy high.

As a portfolio manager, I am always looking for my next move in advance to be proactive. I want assets that are oversold or underappreciated.

In fixed income, I’ve waited a long time, earning practically nothing rather than picking up a couple of extra points on yield but losing five per cent on a total return basis. Now that rates have improved, I am buying HISA-based ETFs yielding around 4.70 to five per cent, which is completely liquid, unlike GICs with higher rates from subprime lenders/ borrowers.

For diversification, I also bought government of Canada short bonds and short-term corporate bond ETFs. In equities, I have been cautious, not wanting to buy above 3,600 on the S&P 500. Overall, I expect an earnings-based recession in early 2023, which has already started in tech and banks. Housing too is beginning to show cracks. This may be as Ed Yardeni describes, a “rolling recession” in which some sectors are hit while others perform well. Brian Westbury at First Trust expects that once investors realize that this recession is not a financial panic like 2008, this could result in a strong rally later this year.

• Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
• Listen to the Market Call podcast on iHeart, or wherever you get your podcasts

TOP PICKS:

SPDR S&P Aerospace & Defense ETF (XAR NYSEARCA)

Aerospace and defence stocks US$110. XAR holds the heavyweights, General Dynamics, Raytheon and Boeing. XAR is not cheap but the U.S. will need to replenish and add significantly to its anti-tank and anti-aircraft missiles.

BMO Covered Call Canadian Banks ETF (ZWB TSX)

$18.03 P/E are low at 9.7 yielding 7.3 per cent which includes both the dividend tax credit and cap. Gains on the option premiums.

CI High Interest Savings ETF (CSAV TSX)

$50.08  from CI is a like cash, liquid/short term Holds HISA from CM/NA/BNS/BMO yield app 4.70 per cent. 

PAST PICKS: February 22, 2022

Vanguard FTSE Canada All Cap Index ETF (VCN TSX)

• Then: $42.37
• Now: $39.62
• Return: -6%
• Total Return: -4%

Vanguard S&P 500 Index ETF (CAD-Hedged) (VSP TSX)

• Then: $71.98
• Now: $63.64
• Return: -12%
• Total Return: -10%

BMO Canadian Bank Income Index ETF (ZBI TSX)

• Then: $29.77
• Now: $27.07
• Return: -9%
• Total Return: -7%

Total Return Average: -7%